PAX: Another Net-Net Opportunity (PSE: PAX)

On a previous post, I presented and defined a net-net opportunity. Paxys, Inc. (PAX, the “Company”) is another net-net opportunity with much higher upside (thanks to a reader who presented me the idea). PAX is a holding company focused on investments in the business process outsourcing (BPO) industry.

PAX has undergone corporate restructuring since 2012 which resulted in the build-up of cash in the Company’s balance sheet. To better understand the changes, below is the corporate structure of PAX in the beginning of 2012: PAX1

As of September 2013, PAX has the following corporate structure:PAX2

Below are the developments since 2012 to the third quarter of 2013:PAX3

Currently, PAX has only two operating subsidiaries namely, ScopeWorks Asia, Inc. (SWA) and Simpro Solutions Limited (SSL). SWA is a Philippine BPO company engaged in general and legal transcription, editing, proofreading, mortgage processing and data conversion services with clients in the US and UK. SSL is a 50:50 joint venture between Paxys Limited and Simpro Solutions, Inc. which is a Canadian BPO Company engaged in contact center and back office outsourcing activities. SSL owns Simpro Solutions Philippines, Inc. which operated a contact center and back office outsourcing in the Philippines.

PAX most attractive feature is its balance sheet. PAX last traded at P1.88 which is substantially below net current asset value (NCAV) of P3.88. Below is my computation:

PAX4

PAX presents an opportunity of more than 100% upside which is much higher than that of SOC. The idea of buying companies trading below NCAV or net-nets is not to go all-in if upside is substantial but to own a basket of stock with similar characteristics. Another thing to watch out for in buying net-nets is whether the company is burning cash by investing it in businesses that are unprofitable. In this aspect, PAX is better than SOC since PAX is engaged in less capital intensive services and careful in not placing good money in bad businesses by placing maximum investment limits in their joint venture projects.

Sources:

1. Completion of sale by Paxys N.V. of 100% equity interest in Paxys
Australia Pty Ltd. to SmartGroup Investments Pty Ltd, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-4469_PAX.pdf

2.  Quarterly Report for period ended September 30, 2013, Note 6, p. 19, http://www.pse.com.ph/resource/corpt/2013/PAX_17Q_Sep2013.pdf

3.  Signing of Deed of Absolute Sale of Shares for the transfer 100% of PAX’s
equity interest in Ubaldo-Reidenbach Solutions, Inc., http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-7919_PAX.pdf

4.  Sale of equity interests in Stellar Global Solutions Philippines, Inc., http://www.pse.com.ph/resource/disclosures/2013/pdf/dc2013-6227_PAX.pdf

5. Signing of Joint Venture Agreement with Simpro Solutions, Inc. re:
engagement in business process outsourcing activities, http://www.pse.com.ph/resource/disclosures/2012/pdf/dc2012-5268_PAX.pdf

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

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